Nirmal Bang recommends GIC Housing Finance

GIC Housing Finance is a small size housing finance company catering mainly to the middle and lower middle income customers with a ticket size of ~Rs 10-15 lakhs. It is more concentrated in the Western and the Southern India with 95% focus on salaried class.

We had recommended the stock in our report dated 18th October 2012 at Rs 106 and had recommended to book profits at Rs 140 which generated a return of 32%. Post that the stock has declined significantly, in line with decline in broader indices. In our view, the correction in the stock provides a good buying opportunity along with attractive dividend yield of 4.5%.

With major improvements in place, and the interest rates showing signs of coming down, the overall demand for housing loans for GIC Housing have seen a significant revival. We believe that GIC Housing is well placed in the small housing finance sector with decent growth, improvement in margins, control over costs and relatively stable asset quality.

With cost of funds showing signs of easing and asset quality under control, GIC Housing is all set to scale up on profitability. Led by the improving fundamentals of the company we believe that the return ratios of the company are set to improve.

We expect RoE to improve to 18.2% (vs 12.3% in FY12) and RoA to improve to 2.1% (vs 1.5% in FY12) in FY14E. Based on our FY14E estimates, GIC Housing is trading at P/BV of 0.97x and P/E of 5.66x which we believe are attractive.